In an action of major importance to a wide variety of industries, the Supreme Court agreed yesterday to decide whether patents can be issued on living things.
The justices granted a government petition for review of a decision in which the U.S. Court of Customs and Patent Appeals held that patents improperly had been denied to Upjohn Co. and General Electric Co. for genetic-engineering inventions assigned to them by the employes who made them.
The lower court held that the mere fact that the inventions involved living microorganisms didn't disqualify them under a section of the patent law reserving patents for "new and useful . . . manufacture or composition of matter . . . "
By contrast, the federal commissioner of patents and trademarks contends that the law covers only inanimate matter and that such occasional exceptions as have been made don't warrant a significant extension of patent coverage without authorization from Congress.
Upjohn describes its invention as "a manmade biologically pure culture of a novel microorganism" used to make lincomycin, an antibiotic. GE says its invention is a bacterium engineered to help get rid of oil spills.
The court took other actions. Franchising
The court left intact a ruling that the "good faith" required by commercial contracts didn't bar a party to a distributorship agreement from nullifying it unilaterally and arbitrarily.
The ruling involved Amana Refrigeration Inc. of Amana, Iowa, a Raytheon Corp. subsidiary, and Corenswet Inc. of New Orleans, which in 1969 was solicited by Amana to become exclusive distributor of its refrigerators, freezers, air conditioners and microwave ovens.
Between 1969 and 1976, Corenswet spent $1.5 million in market development, expanded its retail outlets from six to 72, and increased sales from $200,000 to $2.5 million. Amana repeatedly praised this performance.
During the same period, Corenswet had an estimated overall net loss of $75,000 on its Amana venture. But its expectation all along had been for profitability over the long, not the short, term, and it wasn't until 1975 that it made a profit.
In mid-1976, Amana President George Foersther told Corenswet that it was terminated as Amana's distributor. this notice was followed by increasingly tough demands -- each of which the distributor met -- to get more security for the credit Amana was providing.
Corenswet sued for an injunction and for damages. The termination was arbitrary in breach of the agreement and also of the requirement of good faith in the Uniform Commercial Code, Corenswet alleged. The code has been adopted by all 50 states and the District of Columbia.
U.S. District Court Judge Alvin B. Rubin ruled for the distributor, saying that the phrase "for any reason" in the agreement means "for some reason, not for no reason."
Last April, the 5th U.S. Circuit Court of Appeals reversed, holding that an arbitrary termination is permissible under both the contract and the law of Iowa." Two months later, Amana terminated the distributorship.
In its petition for Supreme Court review, Corenswet said that the 5th Circuit ruling, if left standing, will have "a dramatic and deleterious effect" on franchising. The National Franchise Association Coalition agreed.
Amana contended that the case is moot because Corenswet hasn't been its distributor since June. Corenswet disputed this because it still seeks damages. Accountants
The court left standing a ruling by the 5th U.S. Circuit Court of Appeals that a former rule of the Texas State Board of Accountancy constituted illegal price-fixing. The rule prevented accountants from facilitating price comparisons by quoting or estimating fees.